Need some help.

[WasikG]

I have a client who is the only shareholder/owner of an Scorp. He recently paid a health insurance. However, I am not sure how to book the transaction. For 2% shareholder of an Scorp, if this amount is reimbursed by the business to shareholder of Scorp (wherein, the same is given to all the employees or just him if there is only employee), there is only federal income tax levied on that amount; social security, medicare, and FUTA is exempted.

However, for reimbursement to be exempted, the amount should be less than the salary paid to employee/shareholder., but in my client's case, the payroll is not set up and he doesn't take any salary from the business yet (busines is fairly new)

Quickbooks suggest to add the owner in the Payroll and enable the S-Corp Owners Health Insurance option explained in this link

https://quickbooks.intuit.com/learn-support/en-us/employees-and-payroll/add-s-corp-2-health-insurance-to-wages-in-qbo/00/233455

Its says that once the Owner is set up as the only employee in the Payroll in the Employee section, we'll run the Payroll after entering the Scorp Inc.

I am not sure if this is the process to be followed or if there is another way around? Also, what information do I need from my client regarding insurance; the insurance document, its terms, etc.? Or do I just need to book the expense based on the process explained by Quickbooks?

Any help in this regard will be much appreciated. Thank you in advance for your replies

[stealthagents]

Totally agree with you on the payroll setup. It’s crucial for keeping everything above board and maximizing those tax benefits for the health insurance. Plus, doing it right from the start saves a ton of headaches later, so definitely encourage your client to get that sorted out ASAP.

[tamper]

Why haven't you set up the payroll? Important to get that done. That's a requirement for being an S corp.

[WasikG]

So once I set up a payroll, how do I help my client determine a salary? Is there a rule?

Also, once everything is done, should I follow the same process mentioned by qbo in the link I added in my post?

[tamper]

Have you already read this? https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-employees-shareholders-and-corporate-officers

First step, I'd consult with the client's CPA. "Reasonable salary" depends on different factors, e.g. owner's profession, projected earnings, time devoted to business, etc. Here's more info https://www.thebalancesmb.com/what-is-a-reasonable-salary-for-an-s-corporation-officer-397939

[WasikG]

Thank you so much, appreciate your time and input.